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Passing the Pricing Smell Test

Sometimes things just don’t smell right. Even if you’re not an expert, there’s a dollar figure that will give you pause and make you double check pricing. If your hot water heater dies and the plumber tells you a new one is $700 installed, you might think that’s fair and give him the job. But if he says $1,500 — or $150 — you’ll likely want a second opinion. For you, that threshold has been crossed, and even if you’re not familiar with hot water heater pricing, at some number your instincts will kick in.

The projects we do often fall into that category. One client we worked with recently got a $40,000 bid for a project that they thought should have been half that. They had no basis for their thinking — $20,000 just seemed fair for what they wanted done. Sure enough, they got more bids and they all came in at around $20,000. Now it could be that the initial bidder was going to provide more by way of services; I don’t see how, but I’m giving them the benefit of the doubt. More likely, they were seeking to make up for a loss on another job they did for this client. Or they had an inept estimator. Either way, they lost this job, they lost the confidence of this client, and they let a competitor in the door. The bottom line was that their price didn’t smell right so the client kept looking.
The smell test cuts both ways, as mentioned in the hot water heater analogy. I have had clients pass over a vendor because their price was too low. They are afraid it’s too good to be true, that they’ll be buried in change orders, or that the vendor won’t be around to finish the job. This is a tougher obstacle to overcome, especially if you are pricing a job fairly and your competition is predatory. They may be the ones that shouldn’t pass the smell test, but if they outnumber you, they may look good.

How do you avoid this problem? Well, I would like to say that if you price jobs fairly there won’t be an issue, but that doesn’t always work. A pricing breakdown helps, as the additional information shows that you didn’t pull the number out of your hat. And a narrative is good as well — maybe you’re providing intangibles that add cost but aren’t easily recognized such as training, extended warranty, or faster turnaround. This will also help you ensure that pricing comparison is as close to “apples to apples” as is possible.

But at the end of the day, your best bet is to give your proposals a quick sniff before they go out the door. If they don’t smell right to you, chances are they won’t smell right to your client either!